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Robinhood has become all the rage for traders since the pandemic began swept the globe this year. Confined to home with no sports to bet on and no open casinos, younger bettors turned to Robinhood and the stock market to get their action fix. They were quickly joined by millions of others who saw how much money you can make trading stocks and got in on the action.
We're all for people taking their finances into their own hands, and we're here to help people make the best decisions with their money. But with all the beginner money flowing into Robinhood, we also want to help you avoid some common pitfalls.
We have seen some ridiculous trading take place since the Robinhood trading craze began. Worthless shares of companies in bankruptcy soared as millions of traders piled in without so much as a millisecond of research. Millions of people buying both whole and fractional shares of Tesla Inc. (NASDAQ: TSLA) have pushed the company to a valuation of almost $280 billion.
That's more than Walt Disney Co. (NYSE: DIS), AT&T Inc. (NYSE: T), Netflix Inc. (NASDAQ: NFLX), or Toyota Motor Corp. (NYSE: TM). This valuation is more than four times the combined valuation of Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM).
No one knows how the madness ends, but it's safe to say that it ends badly for new traders who get caught holding the burning match.
And to help you avoid being stuck holding the bag when some of these stocks return to earth, we've combed through the top 100 stocks on Robinhood and pinpointed which simply aren't worth owning right now.
If any of these stocks are in your Robinhood portfolio, now might be the best time to exit. For those considering trading these stocks because they've flashed across social media or you've seen share prices jump, then we're helping you avoid a potential mess.
Plus, some of the worst stocks on Robinhood might surprise you...
It's Too Early for This Robinhood 100 Stock
Dave and Busters make the top 100 list as traders think the stock could continue to bounce higher. The company got a boost earlier this year after private equity giant KKR & Co. Inc. (NYSE: KKR) took a stake, and Jeffries Financial Group Inc. (NYSE: JEF) purchased $100 million of stock to bolster the restaurant's back sheet.
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While the boost may mean the company has a better chance of surviving, it doesn't mean that Dave and Busters does well in the short to intermediate term.
The stock has doubled off the lows but is still 74% down from the 52-week highs. The stock is still more than 50% below the 200-day moving average, so it will be hard for traders to be bullish on the company.
Although most Robinhood accounts seem to favor short-term trading, even long-term investors will have a hard time stepping up to buy Dave and Busters at 40 times earnings.
Avoid This Battered Cruise Stock on Robinhood
I am not sure who the Robinhood bunch thinks will be taking a cruise ship anytime soon. Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) has recently raised over $1 billion to pad the balance sheet and keep it running. The company does not expect cruising to come back in any meaningful fashion until 2021, at least.
If the pandemic continues to spread at the current rate worldwide, we won't see much cruising in 2021 either.
If there is no vaccine and the virus runs unchecked, who wants to spend thousands of dollars to be on what amounts to a floating incubator?
You might think cruises will come back eventually, and this stock will reclaim its former highs. But as the old adage goes, "Markets can stay irrational longer than you can stay solvent."
We'll pass, and so should the Robinhood bunch.
This Is the Worst Stock on Robinhood Now
The one obvious stock to avoid on Robinhood is AMC Entertainment Holdings Inc. (NYSE: AMC). AMC has gotten bailed out by bond buyers who paid over $800 million for AMC bonds. But I'm not sure how much they will get back on their investment.
The company was ready to reopen, but the virus has interrupted those plans. While Texas, Arizona, Florida, and the Carolinas are the current hotspots, almost all states are seeing a rise in new cases and holding off on moving forward with reopening plans.
That leaves AMC with no revenue and a growing stack of bills. They had to skip rent payments for a couple of months now, and while landlords may be willing to give some room for recovery, they have their own lenders to appease. At some point, they will have no option but to push AMC into bankruptcy.
Those new traders who get caught long could see their shares zeroed out by the courts.
Trading on Robinhood can be fun and exciting, but you can get burned too.
Make it a habit to stop by Money Morning every day before you log onto Robinhood, so you can get investing and trading strategies from real experts who have the tools and knowhow to see past the hype and find profitable trades.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.